Biden’s policy advisers were in charge during the secular stagnation years
"If Joe Biden is trying to distinguish his emerging Administration from Barack Obama’s , he hasn’t succeeded in the choice of economic advisers he rolled out Monday. They’re Obama veterans who believe in more spending, more regulation, higher taxes, and easier money. Let’s hope the result is better than what became known as “secular stagnation” during the Obama years.
Janet Yellen, the Treasury nominee, is an economist with a distinguished political resume. She’s a Keynesian from the James Tobin school who believes in spending as fiscal stimulus and low interest rates. As Federal Reserve Chair in Mr. Obama’s second term, she was slow to raise interest rates and reduce the Fed’s bond purchases. She’ll likely favor a 2009-style policy mix next year with a spending blowout while urging the Fed to monetize it.
Mr. Biden has also signed up Jared Bernstein, an architect of the Obama stimulus who famously predicted in January 2009 that spending would keep unemployment below 8% and hit 7% by autumn of 2010. Not quite. The jobless rate hit 10% in October 2009, stayed at 9.9% through April 2010, and didn’t fall below 7% until November 2013. Mr. Bernstein put his trust in the Keynesian “multiplier” that $1 of new spending yields as much as an extra $1.57 or more of additional GDP. Wrong again.
Mr. Bernstein will join the White House Council of Economic Advisers, where his boss will be Princeton economist Cecilia Rouse. She’s a veteran of the Clinton and Obama White Houses. Her academic work has focused on microeconomic subjects such as education and the labor market, and her research is skeptical of the benefits of school choice.
By the way, condolences to Larry Fink, the BlackRock CEO, who has pushed ESG standards on the rest of corporate America but fell short in his bid to become Treasury Secretary. Mr. Deese’s powerful role is a consolation prize, and his selection shows again how Mr. Biden will make climate an economic priority.
That’s also the message from Mr. Biden’s choice of Neera Tanden to be White House budget director. She’s a ferocious partisan who is close to Hillary Clinton, with a Twitter record as acerbic as Donald Trump’s . She’s run the Center for American Progress, the Democratic think tank, and she favors much higher taxes.
She is also a climate obsessive. In October 2019 she tweeted support for a proposal with “sector-specific deployment policies, trillions of dollars in direct federal spending, an economywide price on carbon, and mandatory emissions reductions in communities historically overburdened by pollution.” As budget director she’d supervise the shop that reviews regulations across the government.
That is, if she’s confirmed by the Senate. Ms. Tanden’s slash-and-burn rhetoric has made her many political opponents. That includes many on the left, who recall her role denouncing Bernie Sanders in 2016 on behalf of Mrs. Clinton. We see little difference between Ms. Tanden’s agenda and Bernie’s, but she may pay a price for her habit of casting opponents as enemies of the people.
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The overall message of Mr. Biden’s picks is of a progressive team that views government as the leading engine of economic growth. Our guess is that they’ll use the lingering damage from the pandemic to propose a major spending and tax increase in early 2021.
The irony is that on present trend Mr. Biden will inherit an economy that is recovering much faster than Keynesian economists predicted earlier this year. The Atlanta Federal Reserve has raised its estimate for fourth-quarter growth to 11%, and Wall Street economist Ed Hyman has raised his to 8%.
This isn’t 2009. Once the Covid vaccine is delivered broadly, the economy should soar. The job of the Obama economists will be to keep it going, not dampen growth with the same policy mix that produced the slowest recovery in decades the last time they held power."
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